How Should an Empty Nester Plan for Retirement?
As an empty nester myself, I understand the complex emotions that come with this stage of life. Occasionally I find myself missing my son so much that I’ll go into his room to smell the clothes left in his closet. As parents, we’ve dedicated ourselves to providing our children with more than we had during our own upbringing. However, as our adult children embrace their independence, it’s time for us to focus on the next stage as well. Let’s talk about planning for retirement as an empty nester.
Retiring as an Empty Nester: What You Need to Do
Have you taken a moment to envision what the next chapter of your life will look like? You’ve invested so much in your children’s upbringing, but where do you stand today? Have you considered the reality of retirement and what it means for you? What financial milestone will allow you to turn off the alarm clock and savor each day like it’s a Saturday?
Much like planning a journey and entering your destination into Google Maps, the same concept applies to your retirement plan. Here are essential steps that empty nesters should consider as part of their retirement planning:
- Determine Your Retirement Age: What age do you envision retiring and turning off that alarm clock? Is it 55, 60, or perhaps 65? Without a clear vision and defined goals, your retirement plans remain a dream.
- Assess Your Savings: How much have you saved up to this point? You need a financial blueprint, a 'Google Map,' to guide you step by step through your financial journey.
- Create an 'Empty Nester Financial Plan': With this tailored plan and financial guidance, you can work toward your financial goals more effectively.
- Review Your Current Budget: With your children no longer at home, assess how much you’re saving. Consider reallocating these funds toward your retirement.
- Build an Emergency Fund: How much do you have set aside for a rainy day? Ensure you have 3-6 months’ worth of living expenses in an FDIC-insured savings account for unexpected events like car repairs or home maintenance.
- Evaluate Your Debts: Understand the interest rates on your debts and prioritize paying off higher interest debts first, while maintaining minimum payments on others.
- Redirect Savings to Retirement: If your debts are manageable, consider channeling your savings into retirement investments.
- Tax Planning: What is already done is done. However, we can look to the future and adjust based on last year’s tax return. We can reassess and explore available tax credits, especially if your child is still eligible as a dependent.
- Optimize Retirement Contributions: What type of retirement plan are you contributing to? Whether you’re a business owner or an employee, I’m here to assist you in selecting the most suitable retirement plan tailored to your needs.
- In 2023, you have the opportunity to contribute to your IRA or Roth, with a maximum limit of $6,500. If you’re aged 50 or older, you can contribute an additional $1,000. It’s important to note that some of these retirement plans have income restrictions. Your primary focus should revolve around supercharging your retirement savings and exploring tax-efficient retirement plans.
- Review Risk Tolerance: Assess whether your current investments align with your risk tolerance. While there’s a variety of retirement plans available, the crucial question is, 'Which one is the right fit for you?' This is where collaborating with a financial professional becomes invaluable, guiding you towards the optimal choice.
- Estate Planning: Review your estate plan, including wills, living trusts, and health directives. Ensure your assets are distributed according to your wishes and explore options for gradual inheritance.
- If you only have a will, you should know that wills do NOT avoid probate. Probate can be costly and time-consuming for your heirs.
- Would you prefer your children to inherit your assets as a lump sum, or do you lean towards a gradual distribution over time?
- In the event your child tends to be a spender, have you contemplated providing them with a regular income, say 3%-4% of your assets, throughout their lifetime? This arrangement can also be structured to benefit their children in the next generation.
- Have you taken the time to select an executor? It’s crucial that this individual possesses the qualifications to execute your wishes effectively. Consider their emotional resilience and ability to remain impartial, especially if one of your heirs approaches them with a distressing situation. Ensuring they have the fiduciary capacity to carry out your instructions is equally essential.
Take control of your retirement!
Empower your financial future by revisiting, adapting, and aligning your goals with your unique circumstances. Let’s work together to fortify your retirement plan as an empty nester and secure your financial well-being.